Autonomous once again: The corporate takeover that went wrong

Mike Lynch, founder of what was once a vibrant British software house, has ended an unhappy affair with a US corporate giant

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The Independent Online

When Mike Lynch embarked on a beauty parade for his Cambridge-based data sorting company in the heart of Silicon Valley last year, he didn't think that just over a year later he would be leaving the company he founded 16 years ago. But among the 27,000 jobs Hewlett Packard this week announced it is planning to cut is Mr Lynch himself.

The man often described as the UK's answer to Bill Gates sold his life's work – the data specialist Autonomy – to the US computer behemoth for £6.6bn last August, netting £500m for himself.

Mr Lynch's business, which specialises in software that can search "unstructured data" such as video, was a small entrepreneurial company – part of a growing tech hub in Cambridge nicknamed Silicon Fen.

But Autonomy hasn't been performing the way the computer giant had hoped. HP wants big deals, sealed quickly, and the Autonomy style of working just hasn't fitted in.

HP chief Meg Whitman told analysts that the group has struggled to "close deals" and that it was a "classic entrepreneurial company scaling challenges – it's a whole different ball game."

Her critics retort that HP has stifled Autonomy with its layers off bureaucracy. The American firm is replacing Mr Lynch with one of its own: Bill Veghte, HP's chief strategy officer, a former Microsoft executive.

Mr Lynch's leaving may have come as a shock to some, but under the surface of the deal his departure is not so surprising. It is a classic case of entrepreneurial spirit curdled by the culture of big business. HP has had similar problems hanging on to the bosses of other hi-tech firms it has acquired.

In recent weeks, 20 per cent of Autonomy's staff have headed for the exit, including president Sushovan Hussain, chief financial officer Steve Chamberlain and Martina King,the managing director of Autonomy's visual browser business, Aurasma.

Some analysts suggest the writing may have been on the wall even when the ink was drying on the deal last summer. Marc Geall, Deutsche Bank analyst and former head of investor relations at Autonomy, last year predicted trouble could be ahead. In a note he said: "The management structure, control and systems at Autonomy are more representative of a start-up than a major global player."

HP's background as a computer rather than software business at its heart may have been the root of the problem. Efforts to ape great rival IBM's diversification out of the hardware business haven't produced the desired results. Ms Whitman, once of Ebay, was drafted in after shareholders grew tired of underperformance under Leo Apotheker, the architect of the Autonomy takeover.

George O'Connor, an analyst at Panmure Gordon, said: "It was the classic founders' dilemma. Lynch was used to making his own decisions and Autonomy was bought under a different chief executive. Autonomy was to be HP's chance to get into software, but HP is fundamentally a hardware business that uses software to sell its hardware. This won't change."

The Autonomy/HP culture clash may be an extreme example, but it is by no means unusual and not reserved for corporate US giants. Earlier this year the upmarket footwear and accessories brand Jimmy Choo's leading lady, Tamara Mellon, walked out after 15 years when the business was bought for a second time last year. Ms Mellon was the chief creative officer and turned Malaysian-born Mr Jimmy Choo's small shoemaker into a celebrity-endorsed luxury powerhouse. But after the German brand group Labelux snapped up the business from TowerBrook Capital Partners, Ms Mellon soon decided to leave. With a tidy £85m in her pocket, she is looking at setting up her own brand.

Back at HP, Mr Whitman is hoping she can turn Autonomy into a business that fits HP's mould. She hasn't much time. Analysts are already talking up the chance of a break-up of its disparate printer, server, computer arms.

But what next for the Cambridge tech whiz Mr Lynch? He may invest in others start-ups or pursue his love of livestock. He owns a herd of red poll cows on his Suffolk farm. Some have even suggested he could look at buying out Aurasma from HP.

Corporate boss: Whitman

Meg Whitman, HP's boss, unveiled 27,000 job cuts this week as she attempts to turn the computer giant around in the face of competition from smartphones and tablets.

This means 1,600 – or up to 8 per cent – of its 20,000 staff in the UK, where HP is the biggest supplier of software and IT to the Government, are under threat, according to the union Unite.

The reduction is expected to be made by 2014, but HP claims that many of the cuts could be made by staff taking early retirement.

Staff at its headquarters in Bracknell as well as sites in London, Bristol and Scotland are waiting to hear details.

HP has been through the axe-swinging process before – one of its largest culls followed the merger with the IT firm EDS in 2008.

Dealmaker: Quattrone

Frank Quattrone, the founder of the tech-focused investment bank Qatalyst and one-time star Wall Street tech analyst, sounded out potential US buyers for Autonomy last year, including Oracle. HP, at the time headed by Leo Apotheker, jumped at the chance of landing the data business. Even after Mr Apotheker was ousted and Meg Whitman took the helm, HP stuck by the deal in the face of criticism it was paying too much.